Q3 2021 Cleveland-Cliffs Inc Earnings and to Discuss Acquisition of Ferrous Processing and Trading Co Call

Good morning, ladies and gentlemen.

Name is Donna and I am your conference facilitator today, I would like to welcome everyone to Cleveland cliffs of third quarter 2021 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session. The company reminds you that certain comments made on today's call will include.

N minus statements that are intended to be made as forward looking within the safe Harbor protections of the private Securities Litigation Reform Act of 1995.

The company believes that its forward looking statements are based on reasonable assumptions such statements are subject to risks and uncertainties that could cause actual results to differ materially.

Important.

Predict sectors that could cause results to differ materially are set forth in reports on forms 10-K, and 10-Q and news releases filed with the SEC, which are available on the company website.

Today's conference call is also available and being broadcast at Cleveland cliffs Dotcom.

At the conclusion of the call it will be archived on the website and available.

For replay the company will also discuss results excluding certain special items reconciliation for regulation G purposes can be found in the earnings release, which was published this morning.

At this time I would like to introduce Lorenzo consulted chairman President and CEO. Please go ahead.

Thanks Scott.

For the morning.

Everyone.

So many of those listening today know him already.

I'm pleased to introduce on the school, our new Executive Vice President and Chief Financial Officer, Celso will solve it.

In his previous role.

Senior Vice President of Finance and Treasurer here at Cleveland cliffs.

Also was instrumental to our business and financial transformation.

Over the past five years. He has led all of our capital structure efforts being a key person.

Hi, Thank you Shannon and financing for our transformational acquisitions and managed our liquidity through the pandemic.

Prior to cliffs.

Also had a very successful career as an investment banker.

First at Jefferies.

And Dan at Deutsche Bank.

Also if you could tell by his last name.

So as my son.

During the last several years, Keith Koci Ni has been preparing for this job.

Keith now in charge.

Of our new business unit as president of Cleveland Cliffs services.

We could not have a better or more prepared professional to lead our financial organization.

With that I will turn it over to yourself.

Thank you and good morning, everyone.

I am humbled by the opportunity to serve as cliffs' CFO fully aware of not only our rich 174 year legacy, but also our position of immense influence as the largest flat rolled steel producer in the United States.

I also fully expect that given my family name and the highest.

Standards set by our CEO the expectations for me will be even greater than for anyone else in the seat I am prepared to deliver.

My experience here at cliffs over the past five years has taught me that strategic and financial opportunities exist at all points in the cycle might.

My prior.

Tortillas as CFO are simple one allocate capital in a way that strengthened our business.

To maintain and enhance our financial flexibility.

Three.

Deleverage the capital structure.

Four evaluate and execute.

Execute opportunistic M&A and capital market transactions always with a focus on long term shareholder returns.

And five continue our five year track record of share outperformance relative to our peer group and the broader market.

With those introductory remarks.

Marks aside I will jump right into our third quarter results.

We reported another quarter of record revenues of $6 billion.

Record net income of $1 3 billion.

And record adjusted EBITDA of over $1 9 billion.

Ahead of the guidance, we recently set of one.

8 billion.

Our 42% quarter over quarter growth in adjusted EBITDA was primarily driven by continued price increases on our index linked and spot shipments. These.

These sharp increases on the revenue side were only partially offset by gradual increases on the cost side, including.

For labor and natural gas and additional repairs and maintenance most notably the realign of Indiana Harbor number seven the largest blast furnace in North America and.

And even though it was clearly a one timer we did not add back to EBITDA. The vaccination bonus payment of $45 million that was awarded in paid out to our workforce.

Under our very successful vaccination incentive bonus program, which resulted in over 75% of our workforce fully vaccinated against COVID-19.

In the steelmaking segment, we sold $4 2 million net tons of steel products with a mix of 32% hot rolled 18% coal.

And 31% coated steel with the remaining 19% consisting of stainless electrical plate slab in rail.

Our automotive percentage of revenue was 20% compared to 33% just two quarters ago, clearly, reflecting the reduced volumes in the legacy annual prices.

Cold rolled sector, both of which should dramatically improve next year.

We expect the trends on pricing and cost in Q3 to carryover into Q4 with higher prices from both index linked contracts and some of our repriced automotive contracts offset by similar cost impacts we experienced in Q3.

Ms from Ventas will likely be lighter than Q4, due primarily to seasonality and lower automotive shipments offsetting this we will be moving up to the fourth quarter. Some planned maintenance outages originally scheduled for next year, including the Dearborn Hot end and both blast furnaces at Burns Harbor, along with a few other associated rolling and finishing facilities.

Shipment.

These outages are being accelerated to this year in anticipation of a strong automotive recovery in 2022.

All of these events considered our fourth quarter production should be reduced by approximately 300000 net tons compared to the third quarter.

Our free cash flow generation.

<unk>.

Came in at $1 3 billion for the quarter slightly lower than our original guidance due to slow demand pull from automotive, leaving more inventory to close out the quarter than we expected.

The remaining outage period at age seven as well as the additional outages, we scheduled for the fourth quarter should allow us to reduce these.

<unk> levels during Q4.

This free cash flow generated during Q3 was returned entirely to shareholders in the form of a stock buyback executed via the complete redemption of our 58 million common share equivalent preferred stock with.

With only one quarter's worth of free cash flow we complete.

These immediately redeemed our preferred shares.

I will note that because of the weighted average calculation and the fact that the press were outstanding during a portion of Q3. The full 58 million share reduction is not baked into our Q3 EPS just yet and we will see a further reduction of diluted shares share count.

Complete fourth quarter.

With the press now completely out of the way, we have resumed our aggressive aggressive debt reduction activities.

And only the last three weeks since the end of Q3, we have already generated approximately $500 million in free cash flow and have allocated all of it toward debt repayment.

Count in ABL.

Upon closing of the SPT acquisition next month, all excess free cash flow will continue to be allocated towards further debt reduction.

By next quarter.

Our LTM adjusted EBITDA should exceed our overall net debt balance resulting.

Under the less than one turn of overall net leverage for the foreseeable future at any reasonable HRC pricing assumption going forward.

Because of our strong profitability this year at some point in the fourth quarter. We will have utilized the majority of our tax NOL balance leading to an expected.

<unk> cash tax rate of around 10%.

Prior to the acquisitions of AK steel and am USA, we once expect it to be utilizing these nols for several more years, but the significantly higher profit generation. Following the acquisitions will result in the consumption of the majority of the $2 5 billion.

NOL balance within a year of closing the December 2020 transaction.

Even with the additional cash tax outflow and payments related to the cares Act FICA deferrals from last year to this year free cash flow should remain remarkably healthy in Q4.

The $775 million price.

<unk> of the previously announced acquisition of SPT is equivalent to less than two months of our free cash flow generation.

Wrapping up the financial position of the company is on stronger footing today than it has been during my entire time here at cliffs and that trend should continue into Q4 and 2022.

The fixed price contract business, we have with high end clients such as the automotive Oems gives us significant downside protection if spot prices trend lower.

Therefore, even under the current bearish futures curve for HRC, our average selling price should be much higher next year than it has been this.

Year, leading to the expectation of another year of outstanding EBITDA cash flow generation and debt reduction in 2022.

With that I'll turn it back to Lorenzo.

Thanks.

Very few companies can show the magnitude of growth global cliffs has delivered.

During the last couple of years.

We were at $2 billion revenue company in 2019.

Became a $5 $3 billion revenue company in 2020.

And expect it to be at $20 billion plus company.

In 2021.

Yes.

All of this growth was achieved.

Preserving and enhancing our profitability as demonstrated by our Q3 numbers of $1 $9 billion of adjusted.

Adjusted EBITDA is $6 billion.

And revenues for an EBITDA margin of 32%.

These numbers have gone primarily drove the 55% of our business that is linked to an index price with a smaller contribution from the fixed price contracts.

Tracks that were signed before the market price recovered all of last year.

In the fourth quarter. This will begin to change and even more so you're starting next year when the bulk of our annual fixed contracts for open motive as well as our clients.

<unk> stainless unless it goes to use bleak and team played all reprice at significantly higher levels.

That should protect our profitability into next year, even assuming spot prices go down next.

Next year.

This being said, we do not believe we will see steel spot prices returning back to historical low levels.

And the main reason for that is.

Prime scrap.

Brian the scrap is what electric arc.

As meals.

Old ones are brand new.

Need to produce flat rolled steel.

We have seen a looming shortage of this type of scrap coming for several years.

Which partially motivated our.

Our $20 billion investment in our direct reduction plan four years ago.

We were planning to supply <unk>.

To Eas mini mills.

And that was in the past, but not anymore.

At this time and going forward.

Forward, we also plan to use more prime scrap our cells in our apps.

That will allow us to stretch our hot metal without building new production capacity.

Building new capacity as that comes.

Our mistake.

The steel industry insists Z, making time and time again.

Cleveland cliffs is different.

And we're not going to add capacity ourselves.

But we are definitely seeing what others do.

And we act.

Accordingly.

With that in mind a.

A few days ago, we announced the acquisition of <unk>.

PT.

While the majority of those scrap companies will look that had a prime scrap mix of 10, 15%.

<unk> stood out.

With an outside 50%, while prime scrap in their mix.

SPD is actually one of the largest processors of prime scrap in the country, representing 15% of the entire merchant market in the United States.

Brian scrap is a byproduct of manufacturing including automotive.

Cleveland cliffs is the largest supplier of steel to these outdoor motive and other flat rolled consuming manufacturers.

As such we can offer a compelling.

Selling proposition for their scrap uptake.

The lifecycle of our is steel.

Closed loop.

Cleveland cliffs and the OEM.

Furthermore, the main theme for the steel industry is the carbonization and.

<unk>.

I mean lowering periods. This graph is a good way to reduce carbon emissions.

That applies to both.

Apps and apps.

<unk> is often overlook it as a user of scrap.

But in our footprint it's actually.

Where we consumed the most.

The use of higher amounts of scrap in the Bureau.

<unk> liquid steel output for the same amount of hot metal, which is what we call the liquid pig iron from the blast furnace.

So the more scrap used in the <unk> app.

The last.

As cook needed in the blast furnace per ton of crude steel produced.

With ample access to our own prime scrap we can optimize our productivity with a higher scrap charge.

While significantly reducing our carbon emissions.

On top of that during the last 50 years.

<unk> brand scrap in the United States has been steadily shrinking.

We expect that half a century trend to continue.

Yields continue to improve and unfortunately, China.

China.

Continues to dominate manufacturing.

Finally.

Of the new flat rolled capacity coming online in the United States is for the Eas site, which means that demand for brand scrap and metallics will continue to increase.

That is very conservatively.

Lee another 9 million tonnes.

40% growth of demand for these products over the next four years.

With our decision to use our HB I internally at Cleveland cliffs, and primarily in our blast furnaces.

There.

Zero response and supply to this massive growth in demand for prime scrap and metallics coming from the apps.

Big Iron maybe the most likely alternative but as Seo tools emissions that come attached to pig iron.

Important or mainly in North America, effectively create a negative impact to the scope three emissions associated produce EAA apps.

In that regard, we fully expect that in a not so distant future scope three.

We will have to be reported as much as our scope one and two already are reported today.

That would create a level playing field for all the steelmakers integrated NDA apps.

Moving forward.

<unk> is a good opportunity to remind everyone that no other steel company in North America has more capabilities in mod or new ones by the way than Cleveland cliffs, when it comes to producing flat rolled steel.

That's particularly true regarding automotive.

People tend to confuse all plant names like Indiana Harbor, Cleveland works or Burns Harbor with old plants.

In fact.

<unk> plant names actually carry bring more than is state of the art equipment.

For example, our hot dip Galvanizing line at Rockport works was built in the nineties.

It is 80 inches wide and.

And that is six foot eight.

Eight inches wide.

Our 2032 millimeters before our metric system.

More than two meters wide.

There is no other facility on the continent that can produce what we make there.

The same is true for six quarters at.

<unk> court in new Carlisle, Indiana, and Columbus, Ohio.

Also.

Our advanced high strength steels.

<unk> at Cleveland works are second to none and the automotive Oems no debt.

Our pickling line turn a good meal and galvanizing line in Dearborn, Michigan by the way another six.

First quarter is specialized in exposed panels.

Both built in 2011.

One more time Dearborn works was built by Ford Motor Company in the early part of the 20th century.

But the PLD.

TCM and the hot dip Galvanizing line are only 10 years old.

Our level of technological sophistication and.

Our ability to produce all kinds of automotive flat rolled products, including stainless steel.

Are there reasons why.

Cliffs is.

By far.

The biggest supplier of automotive is doing this country.

A couple of our competitors will be spending billions of dollars in <unk>.

Working very hard to build capacity during the next three years.

We don't need to.

Because we already have the capabilities we need.

That's why Cleveland cliffs supplies.

And a half times more still to the automotive industry than the second largest supplier.

Or more than the second closest third.

Combined.

Another important accomplishment during the quarter was the consistent performance of our direct reduction plant in Toledo.

The plant continues to operate above nominal capacity.

We exceed our expectations.

Not only on production but.

Also in quality and cost.

Case in point.

Our all in cash cost of <unk> in Q3.

$187 per net ton.

A number much.

Then the cost projected when we first approved with the different structure of the plan a few years ago.

This figure is also much better than the price our competitors' base for both prime scrap and imported pig iron.

Also.

Much differently from our original plan.

Sales to outside Eas mills are not significant.

And maybe this continuous completely very soon.

We actually had already decided to.

The majority of our HDI in our blast furnaces, not even in our own Eas.

That allows us to improve better cost and productivity, while improving our coke rate and reducing our <unk> emissions.

Also.

So as a consequence of our API using our blast furnaces, we have already idle.

Batteries at Middletown works.

Coke is not needed at this time.

Another operational change we started to implement in the third.

Quarter involves all Minorca mine and pellet plant, which we acquired as part of the Arcelor Mittal USA acquisition.

Based on our tasks.

We'll soon be shifting our Dr grade pellet production, our way from North shore.

And into Minorca.

Where we will not have to deal with the reasonable royalty structure at Northshore.

As it plan to no longer sell pellets to third parties in the coming years Northshore will become a swing operation.

Which will keep idle every time, we decided to do so.

In any event.

We'll continue to be able to feed our Toledo plant with a consistent feed of Dr grade pellets, but from an orca and not from Northshore.

And as I also explained earlier, we continued to generate plenty of cash and should see a meaningful reduction in debt during the fourth quarter, even after paying for the SPT acquisition.

Based on our expected EBITDA for this year our too.

121 full year leverage is already at a very comfortable level of less than one time EBITDA.

With the new sales contracts, we have already signed.

Our ability to continue to pay down debt is even stronger than what we announced.

<unk> task work.

Wrapping up I want to send a special thank you to.

Our workforce for making another record quarter possible.

The $45 million that we paid in vaccination bonuses this quarter was by far our.

Lows of cash.

And we are pleased that we reached above 75% vaccination rates across our entire footprint.

Beating by a large margin the percentage of vaccinated local population in all the communities we operate.

Best we are keeping our workforce safe safe healthy and compensating them to do so.

Soon we look forward it will coming another 600 blips employees from the FPP acquisition.

We can't wait to bring them into our company.

And our way of doing business.

I will now turn it over to Donna for Q&A.

Thank you ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time, a confirmation tone will indicate your line is in the question queue.

You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Once again Thats Star one to register your questions. At this time. Our first question is coming from Michael Glick of Jpmorgan. Please go ahead.

Good morning.

Nice print.

On the contract side I was wondering if you could give us a bit more color there.

I know you probably can't get into the Quanta team is.

And to the extent you can that would be great, but qualitatively what are you seeing now in contract negotiations versus the old dynamic and how much of your contract book is still.

And then when you talk about higher average prices next year, just wanted to be clear for the non <unk> business. It sounds like youre using the current HRC strips.

Yes.

<unk>.

Michael first of all thanks for the.

Compliments.

About automotive.

Opus today.

Supply give or take $5 million.

Steve.

Automotive.

As you know one car one pump so of steel. So we're talking about a market. That's now in the below $15 million, So let's call it 50 million.

Cleveland just make led to user in terms of the calculations, if we supply five out of 15 with supply with third.

It's a big percentage.

So a lot less in terms of percentage than when we're just the owners of the AK steel another towards Cleveland cliffs combine all this wood frame when Duluth.

The participation of automotive mix.

We are renewing.

By country and so we are done with the.

A number a significant number we're not done with all the.

The important thing to consider is that.

As we.

Little one contract things get a lot more complicated for the next one.

Cause I'm not going to continue to add.

Automotive and every single contract that we negotiate the right now we're not homely.

Negotiate for a higher price.

But they also.

There's a lot more tons. So we are growing growing.

The tonnage that we're delivering for the car manufacturers that we have already closed the negotiation.

And even though I don't have a hard talk for the number of tons that are supplier to the automotive industry, we are going to get to a point that.

So all I guess selective at the end.

And another point I would like to clarify to you because it's a change on the way.

We do business with.

Automotive Oems.

Not such a thing of how we're going to supply a few things like exposed parts, they're not supply everything.

Let's look at our supplier of a camera requirement of vector we are.

<unk> said that we are going to supply everything from the most complicated parts that we are the only ones that can produce all the way down to the easy stuff, but.

But.

Microchip shortage has showed that is multi.

If we can complicate the life of a government or a person a lot.

So.

Look star short.

We are doing what we planned to do executing.

David.

The car Oems are behaving extremely professional.

Do we and I think.

Think of it will be okay, and then that's all I can tell you.

And then could you talk maybe about what youre seeing on the input cost side, I mean, you're obviously well integrated on metallics and coke, but curious what else you're seeing in terms of our materials and the like.

Any supply chain issues, you're focused on mitigating from AR.

Procurement perspective.

Yes look our supply chain issues.

Sure.

Realogy.

One of the most important parts of the new global inclusive the logistics business.

It's under discussion.

In the event my executive Vice President of Logistics Christian Beulah.

We've designed the company this way.

We anticipate that we would have to do.

A lot of work specifically on that we are not suffering.

We just need to work very hard to make sure that.

Have the drugs we have it.

Real cars, we have access to everything that we need in a timely fashion we just.

Case in point, we just conclude the repair of Indiana Harbor number seven with a big Beast, We started daily planet and we finished 24 hours ahead of schedule and.

Everything came in a timely way and we did not have any problems with the.

Box and think that where we bought into it there so.

Yes. It is.

There, but it's like.

<unk>.

The current way of doing business in.

We are not.

Louisiana is lethal than that as far as costs.

We hedge a lot of things and we have the financial.

The expertise to do a good job on that so we're not exposed celso.

<unk> has been doing this for a while and you continue.

To do so so I don't have anything specific to report on that front.

Michael.

Okay, great. Thank you.

<unk>.

Thank you. Our next question is coming from Lucas pipes of B Riley Securities. Please go ahead.

Good morning, everyone.

Lorenzo and team congratulations on the strong quarter and outlook and sell so congratulations to you as well specifically.

Lorenzo really appreciated your prepared remarks on metallics and how that market is continuing to evolve.

And.

On that I wanted to.

I ask you about how you see the spread between prime scrap and HRC over the coming years.

Would really appreciate your perspective on that thank you.

Thanks, Lucas first of all.

These language of spread and all my language.

We are not a melter off script, where steelmakers.

So we start from a reward so with iron ore, we produce pellets and we've pellets, we lose 100% of our iron ore needs with pellets until adult will no longer do that because we load a lot.

Yeah.

We produced from our own beliefs, so heavy HDI or direct reduction capacity, you'll have to have the capacity we have to have access to high reward otherwise youre going to have your capacity sitting idle.

We have a bunch of plants <unk> plants.

Other suppliers' plants.

The island immuno east right now because they can't have access to Dr. Grade pellets, we don't have that problem so anyway.

We believe that language of spread but I will talk about the true.

The components that go to this spread once prime scrap.

If you understand.

Each prime scrap comes from manufacturing.

<unk> been in factory has moved to Asia and right now resides in China.

United States is no longer doing nicely states of the 20th century, when we're a real powerhouse in terms of manufacturer we want to bring that back.

But we're not there yet so we're still.

Play around with China, and China is where manufacturing is so we don't have the.

Support from their manufacturing base very stable, we're outgrowing if consumption is growing you don't need to be.

But economic genius to understand that you have more demand and we don't have more supply.

<unk> scrap will become more expensive.

Because I want more prime scrap for my own use.

U S.

We went ahead and bought the best.

But is that a good fine to have access to prime scrap.

So if things were not really nice in terms of prime scrap for the ones that depend on prime scrap things will get worse, because now we have a big beast of Cleveland cliffs going into the market to put our hands around as much prime.

Best of luck as we can and on top of that keep in mind a lot of the actually the vast majority of.

Prime scrap that is generated in the United States and in automotive and things like that goes from my SKU. So I'll talk about the closed loop that's exactly what we're going to do we're.

Scrap claim our scrap.

It's our scrap has come from our steel not somebody else's SKU, that's a real close loop.

So the situation for prime scrap.

Is that.

Shortages higher prices, that's what we are seeing and that's how we're going to play the game.

Going through as far as the price of Morocco off road, it's all about the services.

I have never seen a group of people.

Like so much to silver.

I see.

We offer service Center company for 10 years, a spike in that from the inside now.

Now Im a supplier.

Levo.

Both for.

For Copa poor people.

These out of the value of their inventory how much they will work against themselves.

The branch.

Maybe for me to sit on their hands, where they should be buying and then they come back in for material and thats what pushed prices up.

They have a business that would be more stable if service centers learn how to play the inventory game.

I have been trying to.

To communicate that for too long I don't think we will be able to do so so whatever hot rolled price rule and is whatever the service centers would like.

Our old price plan, but at the end of the day the scrap component, we're taking care of that.

Sure Colby.

Everything we would like to know but.

That's my take on this.

Different.

The hot rolled and prime scrap.

Appreciated your comments, especially.

In regards to the circular loop and one quick follow up question on that.

If I recall correctly, you will have about 15% or FTP at about 15% share.

Prime scrap.

What's your ultimate goal in terms of market share can you can you.

<unk> that dispute.

15% into it comes with the company.

As we acquired the company, but we are already communicating with our clients.

That would like to acquire our own scrap back.

And.

Our proposition to our clients is very compelling.

Because it's not only look I want to acquire scrap back to mill for you again, so they like that because.

That kind of <unk> chemical.

Chemical composition to what they really have they really need that they really want that's number one but second because.

Scrap steel secondary.

Matrix software raw materials, it's not my primary.

Our source of raw materials, so I can't offer for these clients.

To pay for their scrap more that they are receiving today.

No.

It's a double deep it's good for the business and it's good for the pocket. So I believe we're going to grow this percentage from 50% to a higher number how big I don't know, but it will be bigger.

Super helpful. Thank you. Thank you Laurence.

Changing topics.

<unk>.

You bought back a lot of stock during the quarter you commented on.

The exhaustion of the Nols.

Remember my corporate Finance 101 class kind of makes it makes.

<unk>.

Incrementally more attractive how how.

How do you think about buybacks here, especially where the stock is trading really appreciate your perspective on that.

What we did with the preferred was really take advantage of that.

Our unique situation.

Stock buybacks are always.

Double edge sword, if at all they are very <unk>.

It's a way to return.

Money for the shareholders. It's also an invitation to bring their stock price down in the next cycle.

No matter the site with over one week, one month or one quarter. So it happened again so.

I don't have really.

Fisher.

One size fits all opinion or share buybacks I want to reward the shareholders.

A big shareholder myself I bought stock of this company.

Open market close to 20 times, I think 17 times or something like that since I came to the company seven years.

So what about shareholder myself.

Jack.

Shareholder friendly actions, even because I am a shareholder myself this being said I'm not going to compete with share buybacks or things like that because things evolve I believe that we're doing for the shareholders is so.

So much better so much bigger and so much efficient they'd just be a meager dividend or doing share buybacks that will.

Compromise, our cash position that really doesn't really matter at the end of the date what company can't say two years ago our <unk>.

Revenue now to $81 billion in revenue two years ago I was making.

Sure.

$50 million give or take $100 million.

EBITDA Port now making.

One $9 billion of EBITDA a quarter.

So very few.

We've got a being debt.

Being advertisements you were going to be producing yoga events in order to do that we are doing that with still with manufacturing.

We are changing our business completely shareholders are rewarded as they understand that and play along.

Lorenzo and the team.

Keep up all the great work and best of luck. Thank you very much. Thanks. Thanks Lucas.

Thank you. Our next question is coming from Emily Chang of Goldman Sachs. Please go ahead.

Good morning, Lorenzo also my first question is around the prime scrap or H B I ask usage.

That you mentioned Danielle blast furnaces, maybe can you discuss a little bit about how much less coke continues here. If you increase that are at higher quality raw material input and then Bob is there a rule of thumb to think about what the percentage increase in volumes.

Could you could potentially see from from using more prime scrap that.

Yes.

We are using primarily <unk> and blast furnaces are using prime scrap exclusively <unk>.

Make sure that we are on the same page on where things go.

The H b.

Emily used in blast furnaces.

<unk> reduced.

So we're able to pellets.

<unk> like they do in China to pollute the world and create global warming, we don't do that here either state, we use belts billets and blast furnaces make for extremely.

Mentally friendly blast furnace, but when you move the pellets.

You're holding.

I'm going to simplify this all what your body <unk> dual III.

Youre, losing on the oxide so load coke to reduce debt.

Two or three and reducing as the cone.

Total exciting so we're removing the oxygen.

With the Cook to greet FTE metallic and that's why we need to cover their well when all our big portion and we are building a big portion of Hei.

First we are no longer holding a big portion of F. A dual III.

The proportion of FTE already mid valley.

So to reduce that portion of the Mcdonald's burden you don't need to Cook.

We can't at this point, we're introducing to the order of 20% growth rate. We are going to go before we're going to continue to increase Indiana Harbor Center for example.

Yes.

The biggest west for us in North America, Hasnt used massive amounts of <unk> just yet because.

And the other half was settled at the end of its life, but now if you and I have said this brand new so and the other half will start to eat a lot.

And now we will pushed our total.

Example, tonnage consult drop off coal and Coke and discussed we need to a much lower level I don't know yet the numbers because it came back to operation.

On October 14, so we are too early in the game.

Prices are stable already we're already starting to use HBO would generate.

Total data at <unk>.

Next corporate score I will have a lot of informational voltage on hours of users of <unk> and we will continue to use <unk> in other blast furnace.

<unk> portion of the blast furnace.

With me on that so far because the debt levels to the U S. Yes.

January bookings.

We are using prime scrap in prime scrap is exactly the steel that we will want to produce so it's already done you only need to melt.

So when you add scrap.

Basically melting.

Like the Aaas melt scrap.

We also melt scrap.

The view App, but we use more branch rep. We are melting more whenever a mill Timor.

You need less tonnage of what we call the big IRR that comes from the blast furnace into the B O S.

So last figure for the same store of steel produced we increase the yield of the pig iron you stretch the pig iron to produce the same amount of steel therefore, you're using less big iron land scope to produce the same amount of steel. So the two components more HMD either blast furnace.

More scrap in the Bureau.

Altogether massive reduction of coal and coke and less emissions because coking coal are C and C plus or truly is what generates the future and that those are the issues we'd like to avoid.

Thanks.

Good chemistry lesson.

Maybe my second question is just coming back to that.

The average selling prices that you alluded to being higher next year can you remind us really quickly what percentage of your book is contracted at fixed prices and then in your discussions.

Your contract renegotiations any changes to sort of length of contract.

And appetite for floating versus fixed contracts going forward.

Yes.

It goes with National Bye Bye chemistry lesson.

I'm compelled to.

To give you a little bit of an accounting lesson your number to your share count in your first model as more than what's wrong.

That's why our EPS number was wrong. So please go ahead and fix that Emily.

As far as my my my my percentage of fixed contracts are up 45%.

That's very helpful. Appreciate it.

Due to fix there.

Share count already.

We will certainly be looking into it.

The flag just fix it you used the wrong number.

You need to fix that because when you use the wrong number in the checkout you calculate the wrong EPS for the same net income desk.

Yes, Matt.

Yes.

Thanks Arthur.

Thank you.

Thank you. Our next question is coming from Carlos de Alba of Morgan Stanley. Please go ahead.

Yes, Hello. Good morning, Thank you very much for taking the question so in the.

In the press release, you alluded to 21 million $1 billion in revenues for the year.

So basically that suggest around $6 billion in fourth quarter revenues, which I think is going to come from a combination of slightly lower volumes on higher prices could you mention what do you expect for cost and EBITDA.

Given relatively stable revenues in the fourth quarter and implicitly in your comments.

Carlos you already.

Put all the numbers.

On the table.

David and Digest, a consequence of everything I've just said.

Right.

You said the revenues you said there.

Are we going to get there.

I'm not changing my.

My my guidance at this point, because that's another fool's exercised to change that guidance.

Set yourself forfeited.

So not changing anything.

Alright fair enough. So is it fair to say then then the price increases that you expect will more than offset the cost pressures.

While there were more than offset.

They were more than upset.

Alright.

Okay, I will give a few a few indications.

Our.

Our team fleet business for example, which you have already.

Renewables.

And all the all the clients.

We are increasing between 2021 2000 venture Pricewise.

Hundred percent in other words, we are doubling.

If price of oil.

Template.

Because the costs are not inquiries about evening.

My early calls.

It's.

A fraction of that so we're going to have a meaningful contribution.

Contribution from deeply.

Another one that I would give to you.

Electrical steels, let's.

Steve.

I have been Oh.

Problem.

Yeah.

Shake them until this year until supply chain.

<unk> shows that the clients that were either three board and us.

Yeah.

Dumping grounds in Mexico, and dumping grounds in Canada to try to disrupt the transformers markets here in the United States approve.

Probably to be naked because you know the same ports that bring.

And again, just from China, either fortunate, bringing stuff to do in 19 states as far as electrical steels. So we've protected the clients that are not importing.

Punish the ones that are important.

We are having.

Heading into next year with much higher prices and electrical steels.

For the book and we are privileged the clients, that's where are we does during the times that the others were in 14.

So selling something that's very important when we sell it or sell it to them at a much higher price than they were paying before so the.

The pricing equation for us has very little to do with this thing of the spot prices are possible.

Sure.

$5 yesterday or or went up $2 today, we don't care about that to be honest with you we have contract business type of operation.

And we are always looking 12 months ahead.

Necessary calendar year comps, but 12 months ahead.

Alright that makes sense of any scale I'm talking about imports or how do you see the potential impact to either Europe comes out of section 232, and that is we play the 25%.

Yeah.

Sorry, if you replace by a quota system is there is there are enough steel.

Europe.

Could come to the U S. Even when China may be reducing net exports.

Yes, China's exports by the way.

China is reducing export that's probably.

We're saying towards the time.

Is that several years, China is reducing export Jai.

Im just trying to knock down pollution.

Yeah, that's a good thing for the world for a global War.

But the problem with the Europeans that they want and it's like the same thing with the Japanese and south.

Yeah.

But the south Koreans the Japanese I can't understand it took close to China geographically, but Europe is that they need but to me.

Because they had no business to play both sides of their model, China, and South Korea. They do that all the time they want to be friends with United States. They don't.

Reset Chuck.

Europeans they need to work with us and not to try to work with dozens to smile to shipping.

They need to understand that if.

They are with us.

They should not be with China.

Really that has a much more.

Onto our pro rata go compromised position in the group understands that better than the Europeans. So every time I have a chance to convey my message to you by that nutrition, I keep saying paid attention to this friends in Europe. They are not our friends. They just like to take advantage.

Joe I am supportive of tariff rate quarter.

As long as they did this quarter is fair.

In the tariff that kicks in after the quarter is high.

Anything else.

We're going to be very.

<unk> and <unk>.

And expressing our opinion.

And another thing that needs to be taken into consideration.

Among our 25000 employees, we have 25.

20, plus thousand.

Employees that are unionized and they are doing is shared the same.

And again that I have just expressed.

So the vendor I don't speak for the U S W or the UAW overdue machines.

I've been talking within all the time.

So we are going to be extremely forego if the negotiators on behalf of United States don't play our size of the <unk>.

Game and play the European side of the games. That's one of the very few things that I believe that unifies. This industry. This country Democrats Republicans everybody understands that we need to protect ourselves at this point and not allowing the Europeans to take advantage of us.

Blue fusion table is.

Extremely important.

Alright, and then last question if I may.

How how does switching to minorca would help or could help the DIY cash cost and how much is that royalty component until towards the Hong Kong dollar loss because.

Yeah.

The royalty component.

The north shore is absurdly high.

We've done certainly high.

Cost out of North shore, you saw that number I reported for the all in cash cost of production with <unk>.

100.

And $87 per net ton so even if it was a prohibitive wouldn't be a lot less.

And Thats why we are moving from.

The north shore with a bad.

Very bad.

Its structure to me.

Orca that'll be a big savings in terms of cash.

<unk> from the ROIC standpoint.

We still even with north shore. It was $187 Burnett Plaza, we are good but we can be bad we are always looking for better cost and Thats why were going to Midland by the weak phenomenon plant great plant.

This equipment.

But a general manager.

Things under full control.

Rob doing a great job, leading didn't work integrating into our Cleveland cliffs way of doing business and they are very excited with the opportunity to produce.

Dr Grade pellets that they just started and also the general manager of our Northshore Bull Carson.

Carson was with the guys had developed the Dr grade pellets.

For us first as a general manager of Technology, and then as general manager of North shore. So he is helping and Youll continue to outsource I havent by Northshore people working to help all our people.

People to move Dr grade pellets from Northshore to me in the Orca and.

We are going to have a much better royalty structure.

Lower payments for riots and I'm going to keep north shore, Idaho every now and then.

What we're going to do.

Alright excellent. Thank you very much all the best in the quarter.

And next year, Thanks, Carlos really appreciate it.

Thank you, ladies and gentlemen, we're showing time for one final question today. Our final question will be coming from Alex hacking of Citi. Please go ahead.

Hi, Lorenzo.

Good morning, and sell so.

I'll ask Alex Alex Yes.

You didn't do.

I understand that to be the last question I'm going to.

I'm going to pick up.

Western front.

And Matthew fields that Im seeing.

In the queue. So please don't disconnect.

We have time.

Sorry, if I can show at least.

Yes, I didn't know if you were.

Cancel my question on that.

Oh no no.

I appreciate it.

I would have the other two that are <unk>.

And up to ask questions.

It was probably just quite I don't want them to just go and I don't think their questions as well.

Trying to be.

Yeah.

Effective work and I appreciate you guys joining the call and asking the questions is very helpful for us as well. So please go ahead.

Yeah.

And we appreciate all your candor and straightforward talk outlined zone.

So I guess as you as you look at the <unk>.

Rescue or cash that's coming in right. If we look at it can be a lot of free cash flow next quarter going to be a lot of free cash flow next next year.

Where are you looking to reinvest in the business sort of upgrading capabilities I mean, you've been clear that youre not going to add capacity, but obviously there are other kind of investments that that that that you could make.

While we've seen you invest and raw material on the raw material side are there any significant investments that youre looking to make and how are you thinking about what capex is going to be over the next couple of years. Thanks.

Yes.

It's a great question.

Planes I believe I explained clearly during my prepared.

So we don't have because we have more than a couple of abilities to produce high end skus and.

And we have a very environmentally friendly.

At this point, we feel it's H b I last quarter everything that I explained during the call. We don't have the massive needs of cutbacks that other companies.

<unk> and <unk>.

<unk> committed to deploy we don't have that so our cut backs and we will always be capex for the existing footprint. So as capex for our existing footprint at this point.

Have seen something between let's call it 750 to 850 million.

Michael every year, that's more or less what we are envisioning at this point going forward. So it's not something to two really.

Take our breath away.

At this point the biggest projects that we have in mind right now in my mind, it's being planted as we.

Is it relying of Cleveland blast furnace number five and that will be.

Give or take $100 million type of project so.

It's a little.

A little more than what we would expect for a furnace thats not that big but.

These papers that the need of things to allow the furnace to take more.

<unk> to use more natural gas to reduce co grid, all the things that are happening.

We have been implementing yet another point or so but that's already included in this 752 eight.

That's something that I gave to you.

Hum.

What else was in Europe.

Question, Alex sorry.

No.

To answer the question I guess, just 111 very small follow up.

I mean, you've talked about the importance of de carbonization in the steel sector.

Yes.

What kind of investments are you in <unk>.

It's making over the next few years in terms of decarbonization and any.

Any thoughts on drawing on the most promising technology there. Thank you.

We are we are.

Actually the only company that I know off aimed at United States or abroad.

Has already spent more than $1 billion to decarbonize.

We bought $1 billion in our <unk> plant.

And we.

It improved our cup.

This is at Northshore to.

To produce Dr grade pellets at Northshore to the level of production that would keep the plant literally I know at the time that I've made that investment that I wouldn't be able to acquire <unk>.

Orca.

Inside the transactional Barcelona, Mittal, if I, if I had a crystal ball.

It would not have invested 100 million box, but the fact of the matter than I did.

Nor short was the only one that I could use to produce Dr. Grade pellets. So we have already applied $1 $1 billion to Decarbonize. Adjusted these two projects, one being a portfolio and $100 million toward north shore.

Boy, that's real money.

Going to <unk>.

At this point the answers.

There is no plan to put <unk>.

And the main reason for that is I don't mean it.

Because.

We can change of course, we are no longer selling <unk> to the market.

We changed course, we are not going to continue to sell pellets to the market beyond the expiration of the loss contract.

It'll be all internal.

And we change for US we acquired.

A scrap company and my point to acquire new script companies maybe.

But I believe that our growth can be organic and we might not even need to buy.

A script comps like the most about SPD not only.

Fact that they have already control over our own prime scrap, but also that the management team is phenomenal.

We are excited about the people that are coming to the company and the mindset and how we're going to grow the business under Keith Causey, who buy who by the way.

Hey, Michael.

Michael to guide four distinct.

15 years, we have been.

And then just to get US just metals with me.

So Keith Koci in two months.

You went from not knowing the market by being the Groucho personal lines as markets at this point in his script and knowing everything in finding there.

Right target on SPT and.

Guiding through it working with sell so to get this thing closed.

Record.

Not close signed definitive agreement in a short period of time and everything is lined up for close in Q4.

Record time, great performance perfect solution for us. So we are not going to go in a biased scrap companies because if we find something that fits maybe but we don't need.

I'm going to go to the organic growth and Thats. The way we want to do so long story short Alex we don't have big projects to buy or to build new plants built capacity Oh. My gosh. This has this be stick has the need for so many times U S steel.

It's growing and it's sad to.

The same mistakes being made again, but it's not going to be made by Cleveland cliffs.

Alex Yes. Thank you, thanks, Barak and Beth Best of luck Alright appreciate it Donna next one.

Our next question is coming from Tristan Gresser of Exane.

C P Perry Bob Please go ahead.

Yes, hi, thanks for taking my questions.

First one a quick one I may have missed it but just wanted to clarify.

The prior full year 'twenty one.

The guidance you provided is skills all of it.

Still valid.

<unk> 5 billion.

Okay. Thank you.

Yeah, Thanks, a lot.

It will be higher.

It'll be higher.

I just don't want to give a complete with a number because I can meet with a number and then everybody bumps up and then they find a way to for me to this.

Sure.

I always miss.

I don't Miss the numbers I'll be sarcoma in my prepared remarks, or something like that or my accent is not good so I'm tired of missing.

That's why I'm tired of updating guidance, we do these things at the end of the day to help your you guys.

So volume.

And then you guys say they missed I guess my model no your model amidst against reality, that's what happens.

So it's not you alone since everybody we don't Miss anything we do want to have to do you guys. Eventually mist and latest eventually miss because there are modest.

No good.

Sometimes it's just share count.

Like all of us.

Talking today respectfully with Emily Chang.

It was their own checkout, your EPS will be wrong and their quota Miss that's absurd.

Please.

Yes second question maybe.

What are some energy.

Thank you and as it makes its 40% natural gas.

Have you seen any meaningful increase in energy costs in the quarter.

And can you can remind us a bit of your procurement strategy for natural gas do you have any contracts with hedges in place.

Yes look.

It was all.

Maybe natural gas and we love natural gas actually I have been trying to educate the U.

U S gloom about how relevant natural gas is for us not only as this.

Support for the manufacturing that we have today.

But also the support for the matter of factory of the future. For example, our use of natural gas into lead and our direct reduction plan is actually be real use of hydrogen to reduce or because the natural gas that we're using sides did the direct reduction.

Dave has reported the guests are reformed gas is basically a true.

<unk>, Luke just to to keep the.

The gas hot.

The reduction becomes a true.

Developed by.

Sure.

Process of reforming natural gas so we buy a lot of natural gas the impact in cost is not meaningful we do a lot of hedging so talk a little bit about the hedge on natural gas. Please yeah sure interest and just to give you some some data points.

We consume about 190 million F&B to use of natural gas per.

Across our entire footprint and very Simplistically, you know our goal is to be.

Have hedged 50% hedged.

For the next 12 month period, so we use a number of different instruments to do that.

So the impact of the increase in prices pretty muted based on the fact that we have those hedges in place.

Per year, and I think it's important to note as well that.

Natural gas prices tend to lead to more drilling which helps steel demand in the long run. So we don't see this as a big impact for us going into next year.

Alright.

Really helpful and my last question maybe.

<unk> low carbon steel I mean, you lay out the competitive advantage that will many meals on raw materials.

Other grades capabilities.

Do you see the efforts by certain players in the us to gain market share will notice.

By selling low carbon steel products.

Do you see that as a risk score.

How do you plan to mitigate that and.

What Oems tell you about that topic and contract negotiations.

Well, we sell today 5 million pools, like I said still to the automotive.

So there's a big opportunity for these folks to.

Or a lot of market share.

Even because I believe that $5 billion is excessive.

The problem is that when I get to <unk>.

I'm not that good tonnage a little bit here, a little bit there I'm going to take one gun manufacturer. It is safe to do commerce.

Matter of fact, I'm not sending to you anymore.

So that's a swing that I could definitely the one car manufacturer that I felt a million tons and by the way you have more than one that I saw in municipals.

And that makes us go from five to four.

We are still with four.

Yeah.

Twice as much as the second largest with four five and five were more than twice.

And there's a huge opportunity for this type of steel.

Let's put it like that.

But the car manufacturer, we have to do everything that type of scale I don't think so good proposition I don't think that they will entertain them.

And then how do I do business.

They like it they don't like it.

But my guess would be the next next microchips.

During the semi point treatment.

Yeah, No that's helpful. Thanks, Phil just how.

Paul.

Let's try one more time.

The Europe.

Opinions you're in Monterrey.

Is that correct.

Yeah.

Yeah, I don't think my location has anything to do with your question, but thanks for the answer.

So the old location.

It's a question that I'm, asking you, arguing that an undisclosed location or you are.

A person that can disclose where you are at do you work for a company that's headquartered in Europe or not I.

I need to know because of weather.

An.

An explanation on something.

<unk> can.

Can you share with us.

Yeah of course, I mean, you asked last time.

Okay. So you are in Europe, so the European 70 plate steel.

Steelmakers for a long time.

European car manufacturers.

Yeah.

European car manufacturers have been doing a great job, making densities Leafs.

The car manufacturers.

Well.

Here in the United States, the biggest supplier of steel to common factors does not accept these role.

And thats guiding all of our negotiations with them.

We want.

To be treated in an equal footing.

We don't want to be the belief.

But we are not going to be bullied.

We're not going to accept.

Lip service.

We're going to be.

Brian.

And steel.

With our brand.

Of being the.

Environmentally compliant.

<unk> please.

Please make sure that there was a really reducing ambitions like we are investing a lot of money to reduce emissions. Like we are we are going to be treated the same way at the very least.

And that's the thing so I'm not feeling threatened by this type of.

Still we are actually just to give you a few examples we are actually working on carbon capture.

Hearings in Indiana Harbor.

And.

That's pretty much.

A well known things that we are the ones that are development carbon capture technologies in the steel.

We're making for the entire United States and distinct will be used for the rest of the world.

Also.

We are starting to work with one of the upcoming company.

<unk>.

Are trying to develop a breakthrough technology called Boston mirrors.

With Basel Merrill.

We'll develop their component inside one of our plants.

Here in United States Burns Harbour.

<unk>.

See if their technology.

Work in Subic, which I truly believe it can be a breakthrough technology, but these things at a breakthrough technology.

<unk>.

Europe is trying to make breakthrough technologies to solids like well established technology b or not.

Cannot supply 15 million tons of automotive and steel and based on what you're thinking in breakthrough technologies. If that's the case.

Japan would be doing that because they don't have our own war. They don't have coal, but they have a lot of blast furnace during away because they have a lot of automotive South Korea same thing because they have no iron ore no call, but they have a lot of restaurants through the why because they have a lot of automotive I'm talking.

Talking about Toyota Honda Nissan supplier, that's Japan and key.

In South Korea through the names same thing here in United States.

So even though the names of the car manufacturers.

You'll now know the name of the biggest supplier for the car manufacturers called.

Cleveland cliffs, and we are not only supply environmentally friendly steel today, but we are going to be at the cutting edge of producing the next generation of Skus, because we're already working on.

You don't see the press releases, because I tend to only put press releases out.

We have results.

We don't brag and then to try to do we tried to do we work hard then rebrand.

Alright I appreciate the answer thank you.

Yes.

Thank you.

Thank you. Our next question is coming from Matthew fields of Bank.

<unk> of America. Please go ahead.

Hey, Lorenzo Thanks for reserving time, I appreciate it and congratulations on the promotion well deserved.

Hey, Matt.

I appreciate that but just a question for you where are you located.

New York Good.

A lot of New York.

This is Matt.

It's not an undisclosed location.

I'm not an important enough for an undisclosed location.

Just a quick one about minorca first.

Is there any kind of construction or project capex associated with that.

Transmission is because it's so close to north shore, you can kind of use that Dr plant facility for them in archipelago.

Yes, it can do a lot of things there, but one thing I would not use I would not use iron ore from the pit of Abbott individual.

Mining in Bourbon, Minnesota because.

I don't want to beat.

<unk>.

It's my decision to use them iron ore.

So another location so we use our offering in other locations.

Okay.

Great and then and then the you know that.

That mine sort of.

A 3 million ton at least capacity so so.

Essentially just going to be feeding the H b I plant and sort of know Dr. Pellets on the on the merchant side or no. Dr. Pellets outside of of what gets flowing through the <unk> plant.

Correct of course.

I will comply with all the contracts that we have in place, but this wasn't a zoo bowl away and when they go away.

These apply.

We will concentrate in Monaco for Dr. Grade pellets, we are moving Mustang pellets to United because we didn't.

The previous configuration.

<unk> produced the Mustang pellets at United <unk>, Minorca Theres no reason for that again concentrated.

Mustang.

<unk> think those are the ones that go Indiana Harbor set with this.

Super flux pellet. So we can concentrate mustang pellets into United are 100%, So free up minorca for Dr grade pellets and make Northshore our swing.

Operation.

Using as needed.

Okay, great. Thank you very much and then you know you you've already sort of talked about metallics today and you're obviously a few years ahead of your peers on the on the kind of shortage of metallics coming to this country with it with the <unk> investment and whatnot, but.

Can you talk a little bit about you know the balances that you have to thread between.

In.

And you already said you might sort of grow your appetite for scrap organically and I appreciate that but you know.

What are the kind of the balanced points that you have to hit the benefits from the increased yield from using more scrap on the on the on the on the you know it can actually you know on the con side the prime scrap can.

Can be a little bit expensive compared to your internal pellet production and then ultimately is there a ceiling on the amount that you can use of scrap as a percentage of the batch with with when you get up to kind of losing quality between flexibility and strength on the ultimate end product like what are the constraints that you kind of see for your your footprint on.

You know hitting all of those points that's a great question.

First thing to consider is that we are.

Uh huh.

What would be the theoretical.

<unk>.

Of Oh.

Homeaway to Libra.

What we can't use for scrap.

We have furnaces apps the vessels that.

We're using 82%.

Yeah.

Can't go down to 75%, 74% with no fear with no problem I actually when I was.

U S General manager long ago, I used to do 75%.

Our hot metal because.

25% script, because that wasn't breakfast in terms of stretching my hotmail. So we're implementing that another thing that over time, Jason for cost reasons and got it.

So safe.

Yes.

The replacement of scrap whats prime scrap with obsolete scrap I would like to free up obsolete scrap.

Joost.

Re bar and to produce.

I, just think that the less sophisticated that will be in high demand.

With the infrastructure build we're going to be building that.

Better this country, hopefully soon and they'll be a little rebound in a lot of Uh huh.

I played beans that can indeed obsolete scrap.

For them.

He was a prime scrap where prime scrap belongs and I'm glad.

I have two here that that the flat rolled yes are in the process of replacing Brian scrapped and we built some need scrap good for that and good for me because I have more prime scrap to use to produce highly specified material because that's what we do with them.

Produce is still for the floor of the car to produce steam for everything from.

There is a lot of rigs today is scanned skus will support so.

Pretty much everything so we didnt prime scrap for ourselves, but we are far from detour ethical.

Breakeven point because it is.

At that.

Thermal bounce, but probably not at a cost thing.

Okay. So you know in theory over the next you know.

A couple of years or whatnot, we should look to kind of you growing that scrap business either organically or inorganically.

Mike.

Clearly our own scrap for our own clients like this.

Yes.

Because it's not my main source of feedstock.

A little more flexible with the client and be the clients a little more.

Because it's not stomach cost it's Mike it's in order to produce better steel.

So it will go back.

And with us for the producing and supplying these very same customers with better scale.

Alright, that's helpful. Matt I'm not sure if I'm being clear with that.

Of course, we're scrapping cost a little.

We are more than one would have been to date, but on the other hand, everything you're gaining in terms of.

Higher yields.

Less rejects things like that to offset the fact that we are increasing our dollar or $2 per ton and you know what I'm, saying so in the big scheme of things. This.

This is nothing.

And Thats, how technological this business used to be in the best and over time it kind of.

<unk> started to go away from the technological center of things.

We're bringing this back because it's a.

Very technological moment right now we want to produce the same high quality deals with a lot less emissions.

And that's what we're doing instead.

Instead of just throwing press releases and saying we're going to do deals we're going to do that we are doing and we are doing in <unk>.

Tycho cooperation with carbon are primarily with government effects, but other either fled with consumers as well.

No. That's helpful. I mean, it's a complex system of raw materials that you're feeding it to optimize well along you know more constraints than the steel business is used to having with especially.

Especially with carbon emission now, becoming a bigger constraints so.

Helpful for us to get you know kind of where you're coming from on all of it yes.

I apologize for a bit there wasn't the call that we go up to.

It's too much of a nitty gritty details of the chemistry.

But at the end of the day, you guys I'm going to have to be prepared for that because when you talk about emissions. We're talking about chemistry, we're no longer talking about cost accounting.

No longer talking about the average price of HRC.

Youre going to have to you.

The research.

Analysts.

Community will have to prepare yourself to get.

This conversation to the next level because the phase of.

Announcements and.

Bombastic declarations in trademarks and things like that we will pass because after you do a little bit of.

That everybody, including the clients and you.

Ourselves, we will say, okay, where's the beef how many tons of distinct producing whereas this is still growing.

Is this in the door of the Ford explorer and I'm, making this up.

Car models.

That came to my mind.

Or worse.

<unk> be used and what form so I'll tell you we produce 5 million tons of steel to the common factors I would look to produce less.

Cause I still believe that's too much of automotive exposure, even though it's.

Less than half of what I had when I only had AK steel. So the biggest synergy nobody asked amongst synergies to date by the way the biggest synergy from the acquisition of boutique both AK steel and <unk>.

Arcelor Mittal USA met what the fact that we could bring back.

And the.

Illogical sanity to this business and we are also translating this technological sanity into much higher revenues much higher profits EBITDA margins that were an unheard of before by the way I don't know if we got notice for the companies that reported so far.

We reported the highest EBITDA margins among them all.

So we're doing all that in a profitable way and we will continue to do so next year will be better.

Because of the way, we do business with this contract.

<unk>.

Situations that will protect to the customer.

Customer and to protect to Cleveland cliffs.

And the rest will play around with the market.

Alright, Matt.

I appreciate the question a lot.

Well I think we're done.

Yes, Sir do you have any additional or closing comments today I already did.

Have a great. Thanks.

Thanks Steven.

I'll be talking to you before there's a lot to.

To think before and Cleveland.

Cleveland cliffs, we think everyday.

Let's continue to try to reunite.

Erika too.

So sure that we.

The best country.

World.

Particularly when you are no longer just talking to.

Thanks, That's continued to do things for the betterment of life of the American people that think about the people about the employees not only.

Pay lip service to safety.

Paid them better too.

Things that can improve the lives of average Americans that will bring peace to discuss thanks, a lot bye now.

Ladies and gentlemen, thank you for your participation and interest in Cleveland Cliffs, you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Yeah.

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Oh.

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